Kenya’s debt costs surpass ordinary revenue flows; Report
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As a result of growing dues to China and redemption of the debut Eurobond, Kenya's debt costs have now surpassed ordinary revenue flows
As a result of growing dues to China and redemption of the debut Eurobond, Kenya’s debt costs have now surpassed ordinary revenue flows.
In the first month of the current year, Kenya’s debt repayment expenses came to Sh4.9 billion more than earnings from taxes and service fees, indicating a tightening squeeze on public finances.
According to gazetted data on inflows and outflows from the government’s main account, the Treasury spent approximately Sh161.84 billion on debt repayments in July, topping Sh156.94 billion in tax and non-tax revenue from State services.
A rising likelihood of financial crisis for Kenya in the current fiscal year is reflected in the debt repayment costs, which were nearly double the Sh83.93 billion in the same month last year.
At the same period, non-tax revenue, which includes user fees for government services, decreased by 4.03 percent to Sh1.87 billion, while taxes increased by 18.73 percent to Sh155.07 billion.
Due to rising debts to China and the bullet redemption of the country’s first Eurobond, which cost Sh301.51 billion [as per budget books], Kenya is facing record-high foreign payback obligations this year.
The standard gauge railway and other projects’ higher repayment to the Exim Bank of China, which expected Sh111.93 billion in repayments for the current year, was a contributing factor in the debt burden in July.
China’s debt repayment has been scheduled for overall at Sh112,39 billion by the Treasury, up from Sh107,42 billion in the previous fiscal year that concluded in June 2023.
Kenya usually pays Chinese lenders in two batches in July and January every financial year.
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The rising debt obligations have raised jitters among international investors over Kenya’s ability to refinance huge external repayments.
“Despite the government’s commitment to fiscal austerity, it may not be able to do enough to avoid a sovereign default over the next 12 months. External borrowing costs are prohibitively high,” analysts at UK-based Capital Economics wrote in a note on Kenya’s economic outlook on June 13.
The headache of serving external debt has been heightened by aggressive interest rate hikes by central banks in rich countries in the battle against inflation amidst the sustained weakening of the shilling.
Kenya’s debt binge is underlined by Eurobond offerings, a package of Chinese loans and syndicated commercial loans over the years which are now squeezing its finances as the loans fall due.
The International Monetary Fund and the World Bank have since 2020 classified Kenya at a high risk of debt distress since 2020 as a result of a persistently large deficit in annual budgets in more than a decade, which is bridged through borrowing.
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